Does the Limitations of Shipowner’s Liability Act of 1851 Still Make Sense Today?

The Limitations of Shipowner’s Liability Act of 1851 was created to help U.S. businesses compete against foreign shipowners, while still providing protection for offshore workers.  The Limitation of Liability Act limits a vessel owner’s liability to the post-accident value of the vessel and cargo. 

Two hundred and sixty years ago, this law made sense.  Ships crossing the oceans were on their own.  There were no satellite communications or high tech forecasts to warn of approaching storms and pirates were always a danger.  The Act eliminated the risk of unlimited liability if lives were lost due to an unforeseen disaster.  However, it did not limit liability if the owner’s own negligence or actions contributed to the loss.

On Thursday, Transocean Ltd. sought protection under the Limitations of Shipowner’s Liability Act.  The company filed a petition in federal court asking that its liability for the Deepwater Horizon oil rig explosion of April 20 be limited to the current value of the sunken oil rig.  Before the accident, the rig was worth $650 million.  Today, the wreckage of Deepwater Horizon is worth $26,764,083.

Transocean expects to receive about $560 million in insurance compensation for the loss of the rig.  The company itself is worth over $23 billion.

While it is rare for petitions under the Act to actually limit liability, the filing of the petition does give Transocean some control over the legal process.  All pending lawsuits may need to be refilled in federal court in Houston.